Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.26 %. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $20 per share; stockholders' required return, rs, is 21.83 % ; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the idiot president thinks book weights are more appropriate. What is the difference between these two WACCs?

Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.26 %. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $20 per share; stockholders' required return, rs, is 21.83 % ; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the idiot president thinks book weights are more appropriate. What is the difference between these two WACCs?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bolster Foods' (BF) balance sheet shows a total of $21 million long-term debt with a coupon rate of 8.50%. The yield to maturity on this debt is 8.00%, and the debt has a total current market value of $26 million. The balance sheet also shows that the company has 10 million shares of stock, and the stock has a book value per share of $5.00. The current stock price is $29.00 per share, and stockholders' required rate of return, rs, is 11.00%. The company recently decided that its target capital structure should have 45% debt, with the balance being common equity. The tax rate is 25%. Calculate WACCs based on book, market, and target capital structures, and then find the sum of these three WACCs. Do not round your intermediate calculations.
Sapp Trucking's balance sheet shows a total of noncallable $35 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $45 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $29.00 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.78% b. 2.04% c. 2.42% d. 1.15% e. 1.53%
Western Electric has 34,000 shares of common stock outstanding at a price per share of $83 and a rate of return of 12.80 percent. The firm has 7,500 shares of 8.20 percent preferred stock outstanding at a price of $97.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $416,000 and currently sells for 113 percent of face. The yield to maturity on the debt is 8.20 percent. What is the firm's weighted average cost of capital if the tax rate is 40 percent?
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $24.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.92% b. 2.28% c. 1.08% d. 1.68% e. 1.44%
Wayco Industrial Supply has a pretax cost of debt of 7.6%, a cost of equity of 16.8%, and a cost of preferred stock of 9.1%. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market quote of 101.2. The company's tax rate is 34%. What is the firm's weighted average cost of capital?
The Imhoff Company's balance sheet shows the following labilities and net worth: 10,000 bonds (Issued at par value of $1,000 each, 6% seml-annual coupon, 10 years maturity remaining, and a current market price of $950) 1,000,000 shares of common stock outstanding Issued at $10 each. This past year's free cash flow (FCFO) was $1,000,000. For the next 2 years, free cash flows (FCF1, FCF2) are expected to grow by 20% per year, after which FF's will Increase at a constant rate of 5% per year. The company's WACC is estimated to be 9%. Finally, Imhoff has $1,000,000 invested in marketable securitles. This Investment is set aside for possible future acquisitions and is therefore not part of the company's day-to-day operations. Based on the above information, please answer the following questions: 1. What is the "terminal value" (or "horizon value") of Imhoff's free cash flows (FF's) from Year 3 onwards? 2. What is Imhoff's "value of operations" (or "enterprise value")? 3. What is Imhoff's…
ABC Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon rate of 6.80% and a yield to maturity of 8.10%. This debt currently has a market value of $48 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $213.00 million. The current stock price is $23.80 per share; stockholders' required return, rs, is 15.05%; and the firm's tax rate is 36.00%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between the WACCs using market value and the book value?Work with at least 4 decimals and round your final answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choices –0.46% –0.49% –0.44% –0.34% –0.36%
CMS Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) Preferred stock Common stock ($10 par) Retained earnings Total debt and equity $10,000,000 2.000.000 10,000,000 4.000.000 $26.000,000 The bonds have a 6.6% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt? Select the correct answer. Oa. $6,900,480 Ob.$6,901,361 Oc$6,899,600 d. $6,903,121 Oe. $6,902,241
Consider the following book value balance sheet of ABC, in which all figures are in million dollars. The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are 1 million common shares outstanding. Assets Liabilities and Net Worth Cash and short-term securities $1 Bonds with coupon rate of 8% paid annualy, maturity of 10 years and the current yield to maturity of 9% $10 Account receivables $3 Preferred stock (par value $10 per share) $2 Inventories $7 Common stock $10 Plant and equipment $21 Retained earnings $10 Total $32 $32 a) What is the capital structure of the firm based on market values? b) The preferred stock pays a dividend of $2 per share, the beta of the common stock is 1.5, the market risk premium is 7%, the risk-free rate is 4%, and the firm’s tax rate is 40%. ABC’s bonds have coupon rate of 6%, and currently are trading at par. What is the firm’s weighted average cost of capital (WACC)?…
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
sapp truckings balance sheet shows a total of non callable $45 million long term debt with a coupon rate of 7% and a yield to maturity of 6%. this debt currently has a market value of $50 million. the balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $65 million. the current market value of equity is $20 per share. additionally, stockholders required return is 12.8% and the firms tax rate is 40%. what is the companys WACC based on market value weighting? should be between 9.72 and 12.50. round to 2 decimal places

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